According to a survey by Bank of America, the type of foreign exchange risk most often hedged by firms is:
A) translation exposure.
B) transaction exposure.
C) contingent exposure.
D) economic exposure.

Question

Quizplus · Accepted Answer

Transaction exposure refers to the risk of loss from an unfavorable change in exchange rates between the time a transaction is entered into and when payment is received or made. This is the type of risk that is most often hedged by firms, as it is a more immediate and quantifiable risk compared to other types of foreign exchange risk. Translation exposure refers to the risk of loss from the translation of foreign currency financial statements into the firm's reporting currency. Contingent exposure refers to the risk of loss from a potential future transaction that is uncertain but has not yet occurred. Economic exposure refers to the risk of loss from changes in operating cash flows due to changes in exchange rates, and is often more difficult to quantify and manage.

According to a Survey by Bank of America, the Type